Labour schools backer quits after taxpayer cash ends up in his charity

Labour's flagship academies scheme is in disarray after a leading backer was forced to resign over the misuse of taxpayers' money.

Lord Bhatia has quit the City Academies programme after Government investigators found that £60,000 of public money ended up in the coffers of one of his charities and a further £10,000 was blown on a trip to Dubai.

Last night, the peer, a Labour donor appointed to the Lords by Tony Blair, denied the money had been misspent.

Lord Bhatia, 77, was chairman of the Edutrust Academies Charitable Trust (EACT), which has opened one academy in Lincolnshire and has applied to open a further seven across England in September with the help of £500,000 of public money per school.

Last year, after receiving a tip-off from a whistleblower, the Department for Children, Schools and Families (DCSF) began investigating EACT's finances.

They found that £70,000 had been misspent, including £10,000 on a 'research trip' to Dubai and £60,000 in 'excess rent' to the Ethnic Minority Foundation, a charity chaired by Lord Bhatia.

The charity, which campaigns on behalf of minority communities, rents out office space to the EACT at its headquarters in London.

The findings led David Bell, Permanent Secretary at the Education Department, to summon Lord Bhatia to a meeting earlier this month.

Later, Mr Bell wrote to Education Secretary Ed Balls to tell him that as part of reforms to ensure that 'similar concerns could not occur again', Lord Bhatia had agreed to resign as chairman and member of EACT.

'I believe that we have safeguards in place to ensure the proper use of public funds by academies,' wrote Mr Bell. He added that the £70,000 had been repaid by EACT.

Married with three children, Amirali Bhatia was born in Tanzania and in 1972 moved to the UK, where he became chairman of Forbes Campbell, a merchant bank.

In 2001 he was appointed a 'people's peer', and later donated £3,600 to the Labour Party.

Last night, Lord Bhatia insisted that the EACT had not misspent the money.

'They were legitimate expenses and I am confident that over the next couple of weeks we will be able to prove this to the DCSF,' he told The Mail on Sunday.

'The trip to Dubai was to talk to potential partners in the academies programme and the rent charged to the EACT is a fair market rent.'

Asked why he had resigned, he said: 'It was always my intention to step down from the trust before long.'

The allegations are the latest blow to the academies programme - Mr Blair's 'big idea' to revitalise underperforming state schools by making them independent of local authorities with the help of money from private sponsors.

Earlier this year the heads of more than 70 academies warned in a letter to Schools Minister Jim Knight that the erosion of their independence under Mr Brown, who has always been sceptical about the scheme, was making it difficult to raise standards.

The letter, signed by Mike Butler, chairman of the Independent Academies Association, concluded that sponsors, chairmen and principals 'are seriously questioning the long-term sustainability of the programme'.